This report has cleared the Treasury Inspector General For
Tax Administration disclosure review process and information determined to be
restricted from public release has been redacted from this document.

July 29, 2004

MEMORANDUM
FOR DAVID A. GRANT

†††††††††††††††††††††††††††††††††††††††† DIRECTOR
OF PROCUREMENT

†††††††††††††††††††††††††††††††††††††††† INTERNAL
REVENUE SERVICE

FROM:†††† Daniel R. Devlin /s/ Daniel R. Devlin

†††††††††††††††† Assistant Inspector General
for Audit (Headquarters Operations and

†††††††††††††††† Exempt Organizations Programs)

SUBJECT:†††† Audit of Control Environment and Overall
Accounting System Controls† (Audit
#20041C0235)

The
Defense Contract Audit Agency (DCAA) examined the contractor Civil Groupís
overall accounting system controls as of April 13, 2004.† The purpose of the examination was to assure
the contractor Civil Groupís system of accounting controls is adequate to
provide costs that are reasonable, compliant with applicable laws and
regulations, and subject to applicable financial control systems.† The examination also evaluated the
contractor Civil Groupís compliance with the systemís internal control
requirements.† The DCAA examined only
the overall accounting system.†
Accordingly, the DCAA expresses no opinion on the contractor Civil
Groupís system of internal controls taken as a whole.

The
DCAA opined that the overall accounting system and related internal control
policies and procedures of the contractorís Civil Group are inadequate in
part.† The DCAA cited four significant
deficiencies in the contractorís accounting system.† These include lack of complete formal policies; noncompliance
with Cost Accounting Standard 403, Allocation of Home Office Expenses to
Segments; lack of policies for income, rebate, allowances, or miscellaneous
credits; and noncompliance with subcontract costs of implementing the
Subcontract Information Management System.†
The DCAA noted that these deficiencies could adversely affect the
organizationís overall control environment and its ability to record, process,
summarize, and report costs in a manner consistent with applicable Federal
Government contract laws and regulations.

The
DCAA also indicated that it is the contractorís policy to not provide the DCAA
with internal audit workpapers.†
Accordingly, the DCAA cannot verify the effectiveness of the
contractorís management monitoring function.†
Additionally, the contractorís policy does not require the contractorís
Ethics Committee to report the results of internal investigations to the
Federal Government.

According
to the DCAA, the contractor agrees and has already taken aggressive action to
correct these deficiencies.† The DCAA
will perform a follow-up of the contractorís corrective actions and provide a
supplement to the audit upon receiving the contractorís support.

The
information in this report should not be used for purposes other than those
intended without prior consultation with the Treasury Inspector General for Tax
Administration regarding their applicability.

If you have any questions, please
contact me at (202) 622-8500 or John R. Wright, Director, at (202) 927-7077.

Attachment

NOTICE:

The Office of Inspector General for Tax Administration has
no objection to the release of this report, at the discretion of the
contracting officer, to duly authorized representatives of the contractor.

The contractor information contained in this report is
proprietary information.† The
restrictions of 18 U.S.C. ß 1905 must be followed in
releasing any information to the public.

This report may not be released without the approval of
this office, except to an agency requesting the report for use in negotiating
or administering a contract with the contractor.